MINDEN — The ethanol industry is willing to immediately give up $1.3 billion in tax breaks for federal debt reduction.

However, that probably can’t happen unless authorizing legislation is attached to a successful debt ceiling-budget reduction bill, said KAAPA Ethanol Chief Executive Officer Chuck Woodside, chairman of the national Renewable Fuels Association.

“Really, what we’re waiting on is a vehicle that will move this to the president’s desk,” he said Friday.

U.S. Sens. Amy Koubuchar of Minnesota and John Thune of South Dakota, along with ethanol opponent Sen. Diane Feinstein of California, proposed ending the 40.5-cents-per-gallon Volumetric Ethanol Excise Tax Credit on July 31 instead of Dec. 31.

Woodside said getting tax break changes approved in time to get the full debt reduction benefits is less likely the closer the calendar gets to July 31.

Ethanol officials hope their support of the Ethanol Reform and Deficit Reduction Act is a model for other industries. “Our question is, when do we talk about these things with the oil industry?” Woodside said.

“We don’t need the excise tax credit as an incentive for refiners to blend (ethanol into gasoline) any more than we need an incentive to drill for $100 a barrel oil,” he said, because ethanol is the cheapest fuel available.

What ethanol processors need is access to customers, which is controlled by oil companies through gas station ownership or agreements with retailers, Woodside said.

The U.S. senators’ proposal includes $668 million to extend some tax credits.

Incentives will continue through 2014 for retailers who invest in blender pumps that give customers alternatives to the standard 10 percent ethanol blend. Woodside said consumers then have the additional choices of “E15, E30, E85 or E-zero.”

The existing $1.01 per gallon tax credit for cellulosic biofuels would continue through 2015, with caps on total costs each year. A reduced credit for small ethanol producers would extend through 2012.

Woodside said the compromise isn’t perfect, and the loss of VEETC may affect prices at the pump.

Large fuel distributors tell him that they are passing tax break savings to retailers to help them stay competitive. He said that if the 40.5-cents-per-gallon savings is lost, and with ethanol representing 10 percent, there could be a price bump of about 4 cents per gallon on E10.

Woodside said incentives for Americans’ continued support of ethanol include trade deficit benefits from exports of production beyond the current U.S. renewable fuels standard; security benefits from a home-grown, renewable fuel; and huge economic benefits to ethanol-producing states.

“At the end of the day, you look at the Nebraska economy doing well, and so much of that is due to the health of the ag economy. … and ethanol has a large part in that success,” Woodside said, by creating greater demand for corn and higher prices for grain farmers.

The focus now for incentives and research dollars is cellulosic ethanol, which is produced from raw products such as cornstalks and wood.

Woodside doesn’t expect corn-based plants to convert to cellulosic processing, but existing plants can be part of the next generation of ethanol production.

“We already bring cellulose in,” he said, and more of the corn kernel might someday be used to produce ethanol. “We have a lot of base infrastructure. We have rail (transportation). We have the ethanol tanks … Everyone along the whole value chain, including the enzyme people we work with, is doing a lot of research on cellulosic ethanol.”

Farmer-owned plants such as KAAPA Ethanol also have ties to producers with tons of corn stover on their fields. The trend toward more bushels per acre means more cornstalks left after harvest.

“At some point, it becomes a good agronomic practice to remove some (stalks),” Woodside said, or there will be problems with no-till planting the next spring.

He estimated that a cellulosic plant built today would cost two to three times more than a corn-based plant. It’s the same with all start-up industries. “The first plant always is the most expensive to build. It was like that for corn ethanol,” he said.

Ethanol is about 10 percent of the U.S. fuel supply, so there is room for cellulosic ethanol. Woodside said the health of a second-generation ethanol industry depends on maintaining a healthy first generation.

He said a strong commitment to U.S. energy independence and security is required to keep the interest of biofuel investors. “As far as I know, we’ve never had to deploy troops to protect an ethanol plant,” Woodside said, referring to ongoing turmoil in oil-producing regions of the Middle East.

For now, KAAPA Ethanol officials are looking at industry opportunities, such as buying interests in Minnesota and Ohio plants, that don’t involve increasing production at the plant west of Minden.

“That’s certainly possible in the future, if the market determines the need for it,” Woodside said. “…The question is what will drive new production?”

source: kearneyhub

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